Mortgage Banking Update - April 8, 2021
In This Issue:
- SCOTUS Narrows Reach of TCPA Autodialer Definition
- CFPB Rescinds Seven Policy Statements Providing Regulatory Flexibility During Pandemic
- CFPB Rescinds 2018 Bulletin on Supervisory Communications and Issues Replacement Bulletin Eliminating Supervisory Recommendations
- CFPB Issues Annual FDCPA Report
- CFPB Issues 2020 Consumer Response Annual Report
- FFIEC Issues 2021 HMDA Guide
- CFPB Announces Availability of 2020 HMDA Data
- CFPB and Federal Banking Agencies Issue RFI on the Use of Artificial Intelligence by Financial Institutions
- VA Expands Deferment Option for Borrowers Missing Payments Due to COVID-19
- GAO Report Shows Servicemembers Can Effectuate USERRA and SCRA Rights in Arbitration, and Arbitration Clauses Do Not Prevent Servicemembers From Pursuing Many Claims Administratively, Without Class Actions
- CA Dept. of Financial Protection and Innovation Uses New CCFPL Authority to Take Enforcement Action Against Individual and Companies That Advertised PACE Financing and Solicited Consumers
- Did You Know?
For the latest updates on the Coronavirus COVID-19 pandemic visit the Ballard Spahr COVID-19 Resource Center
In a unanimous decision, the U.S. Supreme Court limited the reach of the Telephone Consumer Protection Act (“TCPA”) on April 1 by narrowing what technology qualifies as an Automatic Telephone Dialing System (“ATDS”). Among other restrictions, the TCPA prohibits calls to phone numbers using an ATDS without prior express consent. The TCPA defines an ATDS as “equipment which has the capacity (A) to store or produce telephone numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.”
In Facebook v. Duguid, the Court held that the key phrase “using a random or sequential number generator” modifies both “to store” and “to…produce.” Therefore, automatic dialing technology only qualifies as an ATDS if it has the capacity to store numbers “using a random or sequential number generator” or to produce numbers “using a random or sequential number generator.”
Although the Court repeatedly mentioned “capacity,” it likewise highlighted current use. Practically then, “equipment that merely stores and dials telephone numbers” (as Justice Sotomayor, writing for the Court, described the devices that would be an autodialer under the plaintiff’s interpretation), no longer necessarily runs afoul of the TCPA’s ATDS prohibitions. Importantly, as the Court makes clear, the ruling does not affect the TCPA’s prohibition on calls that use “an artificial or prerecorded voice,” such as prerecorded voice messages.
While this ruling will likely curb litigation, clients should remember that they can still face stiff statutory penalties for violations of other TCPA provisions unaffected by the ruling as well as other federal and state statutes that restrict communication. The Supreme Court’s opinion can be found here.
We have released a podcast discussing the ruling.
The CFPB has rescinded seven policy statements issued from March 26 through June 3, 2020 that were intended to provide flexibility to financial institutions in meeting certain compliance requirements during the pandemic. (The Bureau’s press release announcing the rescission of the seven policy statements also announced that the Bureau was rescinding its 2018 bulletin on supervisory communications and replacing it with a new bulletin.) This action follows the Bureau’s rescission last month of its January 2020 policy statement, “Statement of Policy Regarding Prohibition on Abusive Acts or Practices.” While the rescission of the January 2020 bulletin become effective upon its publication in the Federal Register, the rescissions of the seven policy statement and 2018 bulletin became effective April 1, the day after they were announced by the Bureau.
The rescission of the policy statements was foreshadowed by Acting Director Uejio in his statement to Bureau staff which he shared in a February blog post. In the statement, Mr. Uejio indicated that he planned to reverse policies of the Trump Administration “that weakened enforcement and supervision,” including by “rescind[ing] public statements conveying a relaxed approach to enforcement of the laws in our care.” The CFPB’s news release announcing the rescission of the seven policy statements includes the statement that “[w]ith the rescissions, the CFPB is providing notice that it intends to exercise the full scope of the supervisory and enforcement authority provided under the Dodd-Frank Act.”
The rescissions of the policy statements are set forth in notices to be published in the Federal Register. The rescinded policy statements are:
- Statement on Bureau Supervisory and Enforcement Response to COVID-19 Pandemic (March 26, 2020). In its rescission notice, the CFPB also states that it “does not intend to continue to provide any flexibilities afforded entities” under the Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working with Customers Affected by the Coronavirus (April 7, 2020) and the Interagency Statement on Appraisals and Evaluations for Real Estate Related Financial Transactions Affected by the Coronavirus (April 14, 2020).
- Statement on Supervisory and Enforcement Practices Regarding Quarterly Reporting Under the Home Mortgage Disclosure Act (March 26, 2020). The CFPB’s rescission notice also instructs all financial institutions required to file quarterly to do so beginning with their 2021 first quarter data, due on or before May 31, 2021, for all covered loans and applications with a final action taken date between January 1 and March 31, 2021. The notice also states that the Bureau does not intend to cite in an examination or initiate an enforcement action against any entity that did not make the quarterly filing for data collected in 2020.
- Statement on Supervisory and Enforcement Practices Regarding CFPB Information Collections for Credit Card and Prepaid Account Issuers (March 26, 2020). The CFPB’s rescission notice includes guidance as to how issuers should now meet the specified information collections requirements relating to credit card and prepaid accounts.
- Statement on Supervisory and Enforcement Practices Regarding the Fair Credit Reporting Act and Regulation V in Light of the CARES Act (April 1, 2020). The CFPB’s rescission notice states that the rescission does not apply to the portion of the statement under the heading “Furnishing Consumer Information Impacted by COVID-19.” In that portion of the statement, the CFPB expressed support for furnishers’ voluntary efforts to provide payment relief and indicated that the CFPB did not intend to cite in examinations or take enforcement actions against those who furnish information to consumer reporting agencies that accurately reflect the payment relief measures they are employing. In the rescission notice, the CFPB states that it “does not intend to cite in an examination or initiate an enforcement action against any entity that did not comply with the FCRA and Regulation V requirements as described in Statement between April 1, 2020 and March 31, 2021.”
- Statement on Supervisory and Enforcement Practices Regarding Certain Filing Requirements Under the Interstate Land Sales Full Disclosure Act (ILSA) and Regulation J (April 27, 2020). The CFPB’s rescission notice instructs land developers subject to ILSA and Regulation J to resume filing annual reports of activity and financial statements as specified in Regulation J. It also states that the Bureau does not intend to take supervisory or enforcement action for delays in filing annual reports of activity and financial statements against developers who make any such delayed submission by April 30, 2021 for the time period that the statement was in effect beginning April 27, 2020 through April 30, 2021.
- Statement on Supervisory and Enforcement Practices Regarding Regulation Z Billing Error Resolution Timeframes in Light of the COVID-19 Pandemic (May 13, 2020)
- Statement on Supervisory and Enforcement Practices Regarding Electronic Credit Card Disclosures in Light of the COVID-19 Pandemic (June 3, 2020)
In each of the rescission notices to be published in the Federal Register, the CFPB provides its rationale for why the flexibilities provided by the rescinded policy statement are no longer warranted. Underlying all of the rescissions is the Bureau’s view that since it released the statements, the circumstances that prompted the statements have changed. In the CFPB’s view, companies have had sufficient time to adapt to the pandemic and adjust their operations as needed to satisfy their compliance obligations. To explain several of the rescissions, the Bureau points to companies’ adjustment of operations since March 2020 by, for example, shifting to remote modes of operation. It also points to the rescission and modification by states and other jurisdictions of stay-at-home orders, stating that “the Bureau has learned that many entities have resumed some level of in-person operations and, in many instance combined with more robust capabilities, have demonstrated improved business continuity.”
The rescissions are clearly another example of Acting Director Uejio’s efforts to send the message that “there’s a new sheriff in town.” All consumer financial services providers, not only those who have availed themselves of the flexibilities provided by the rescinded statements, should be responding to that message by reviewing their compliance practices to make sure their houses are in order.
In addition to rescinding seven policy statements providing flexibility to companies in meeting certain compliance obligations during the pandemic, the CFPB also has rescinded its 2018 bulletin (2018-01) that announced changes to supervisory communications. The Bureau has replaced the 2018 bulletin with a new bulletin (2021-01).
In the 2018 bulletin, the Bureau announced it was adding a new category of findings that convey supervisory expectations to the existing category of matters requiring attention (MRAs). The Bureau planned to use the new category, Supervisory Recommendations (SRs), to recommend actions for management to consider taking when the Bureau had not identified a violation of a federal consumer financial law but had observed weaknesses in an institution’s compliance management system (CMS). Unlike MRAs, SRs would not include periodic reporting requirements or expected implementation timelines. The bulletin indicated that the Bureau would continue to use MRAs to communicate to management specific goals to be accomplished to correct violations of federal consumer financial laws. It also indicated that although neither MRAs nor SRs were legally enforceable, the Bureau would consider an institution’s response in addressing violations or CMS weaknesses when assessing an institution’s compliance rating or otherwise considering the risks that an institution poses to consumers and markets. Such risk considerations could be used by the Bureau to prioritize future supervisory work or in assessing the need for an enforcement action.
The new bulletin eliminates the category of SRs and expands how the Bureau intends to use MRAs (which the Bureau “believes…will more effectively convey our supervisory expectations”). Bureau examiners are permitted to issue MRAs “with or without a related supervisory finding that a supervised entity has violated a Federal consumer financial law.” The Bureau will not only use MRAs to communicate to management specific goals to be accomplished to correct violations of federal consumer financial laws but will also use MRAs to communicate specific goals to address violations of “other laws enforced by the Bureau,” risk of violations of federal consumer financial laws and such other laws, and CMS deficiencies. Whether or not addressing a violation of a federal consumer financial law, an MRA will include timeframes for reporting an entity’s efforts to address matters identified, including, as appropriate, periodic reporting and expected implementation timeframes. Like the rescinded bulletin, the new bulletin states that MRAs are not legally enforceable but that the Bureau will consider a supervised entity’s response to MRAs when assessing its compliance rating or otherwise evaluating the risks that its activities pose to consumers and markets and may use such risk considerations to prioritize future supervisory work or in assessing the need for an enforcement action.
Our impression of the new bulletin, and the elimination of SRs, is that it further underscores the theme that the CFPB plans to be more forceful with supervised entities, and wants to eliminate anything giving the appearance that the Bureau is willing to take a lighter or more permissive touch. Now, anything the CFPB wishes to communicate at the conclusion of an examination, short of referring a matter to enforcement, will be done through an MRA, together with an MRA’s deadlines and reporting requirements, whether it concerns a violation of law or an improvement to the institution’s CMS. In other words, the Bureau won’t be recommending improvements in the future – it will require them, and then expect proof that they have been implemented. It remains to be seen how the CFPB will handle perceived failures to satisfy MRAs that are not based on alleged violations.
The CFPB has issued its annual Fair Debt Collection Practices Act report covering the CFPB’s and FTC’s activities in 2020. Debt collectors should expect increased scrutiny from the CFPB in 2021, with both Acting Director Uejio and Director-nominee Rohit Chopra having identified unlawful debt collection practices as a CFPB priority target.
In addition to a description of the FDCPA-related findings from the Bureau’s Summer 2020 Supervisory Highlights and Special Edition of Supervisory Highlights on COVID-19 Prioritized Assessments, the report includes the following information:
- According to the report’s section on complaints, the CFPB received approximately 82,700 debt collection complaints in 2020 (which was 7,500 (approximately 10%) more than in 2019). As in 2019 (and all prior years since the Bureau began accepting debt collection complaints in 2013), the most common complaint was about attempts to collect a debt that the consumer claimed was not owed (with more such complaints involving identity theft than in 2019). The second and third most common complaint issues were, respectively, written notifications about the debt, and taking or threatening a negative or legal action.
- In 2020, the CFPB announced four new FDCPA enforcement actions. Two of those actions resulted in consent orders and the other two actions are still pending. The pending actions consist of :
- An action filed in September 2020 by the CFPB and New York Attorney General against five debt collection companies and four individuals who own and manage the companies in which the complaint alleges the defendants used deceptive, harassing, and otherwise improper methods to induce consumers to make payments to them in violation of the FDCPA and CFPA.
- An action filed in December 2020 in which the complaint alleges that the defendant. violated the FDCPA and CFPA in connection with its operation of bad-check pretrial-diversion programs on behalf of more than 90 district attorneys’ offices throughout the United States. Such programs require the writer of a dishonored check to pay the debt and also enroll in, pay for, and complete a financial education course.
- The actions that resulted in consent orders consist of:
- A lawsuit filed in September 2020 in which the complaint alleged that the defendants engaged in various unlawful practices in violation of the FDCPA, the CFPA, and a 2015 administrative consent order between the defendants and the CFPB. Among the practices that the Bureau alleged the defendants engaged in that violated the consent order was suing consumers without possessing documentation as required by the consent order, using law firms and an internal legal department to engage in collection efforts without providing disclosures required by the consent order, failing to provide consumers with loan documentation upon request as required by the consent order, and attempting to collect on debts for which the applicable statute of limitations had run without providing disclosures required by the consent order. The consent order requires the defendants to pay $79,308.81 in consumer redress and a $15 million civil money penalty.
- The resolution of an FDCPA investigation of a New Jersey debt buyer that was found by the Bureau to have threatened and sued consumers to collect debts in states where it did not have a legally required license. The Bureau concluded that the debt buyer had falsely implied that it had a legally enforceable claim for payment and threatened to take action that could not legally be taken by threatening litigation in the demand letters and filing debt-collection lawsuits without the required licenses in violation of the FDCPA and CFPA. The consent order requires the debt buyer to pay a civil money penalty of $204,000.
The Bureau states in the report that, in addition to its pending enforcement actions, it “is conducting a number of non-public investigations of companies to determine whether they engaged in collection practices that violate the FDCPA or CFPA.”
The CFPB’s report incorporates information from the FTC’s most recent annual letter to the CFPB describing its FDCPA activities.
The CFPB has issued its Consumer Response Annual Report, which analyzes the approximately 542,300 complaints received by the CFPB between January 1 and December 31, 2020. The number of complaints received in 2020 represents a nearly 54% increase over the approximately 352,400 complaints received in 2019. The report details the trends in consumer complaints across various categories and provides information about the CFPB’s process for handling complaints.
As of February 1, 2021, the Bureau sent approximately 84% (456,100) of the 542,300 complaints to approximately 3,300 companies for review and response, referred 9% to other regulatory agencies, and found 7% to be incomplete.
Companies provided timely responses to approximately 99% of the approximately 456,100 complaints sent to them by the Bureau for response in 2020. Approximately 3% of such complaints were closed with monetary relief; 6% were closed with non-monetary relief (e.g., mortgage foreclosure alternatives, stopping unwanted calls from debt collectors, correcting information in a consumer report, etc.); 87% were closed with explanation (i.e., the response substantively meets the consumer’s desired resolution or explains why no action was taken); 2% resulted in an administrative response requiring further review by the CFPB; less than 1% are still being reviewed by the company; 1% did not receive a timely response.
According to the CFPB’s breakdown by category, complaints regarding credit reporting (319,000 or 59%), debt collection (82,700 or 15%), credit cards (235,900 or 7%), checking or savings (30,000 or 6%), and mortgages (29,400 or 5%) accounted for approximately 92% of the 542,300 total complaints.
The CFPB attributes the sharp increase in the number of complaints it received in 2020 to the pandemic’s disruption to the consumer financial marketplace. The increased volume of complaints in 2020 was primarily the result of credit reporting complaints. In its news release about the report, the Bureau highlights the following issues related to credit reporting complaints:
- The CFPB received more complaints from consumers about inaccurate information on their credit and consumer reports in 2020 than in 2019.
- While the nationwide credit reporting agencies (NCRAs) typically provided substantive and comparatively detailed responses to the majority of complaints in prior years, the CFPB observed that in 2020, the NCRAs stopped providing complete and accurate responses to many complaints.
- The NCRAs provided closure responses noting that a dispute would be filed on the consumer’s behalf, but otherwise failed to address the issues consumers raised in their complaints.
- The NCRAs mentioned suspected third-party activity in their responses to consumers, but did not detail steps taken to authenticate consumers or to address the issues raised in their complaints.
Acting Director Uejio’s message contained in the report, his statements to CFPB staff, and the confirmation hearing testimony of Director-nominee Chopra make clear that consumer complaints will play a major role in the “new CFPB’s” use of its supervisory and enforcement authority. In addition, companies should expect close scrutiny from the “new CFPB” of their practices for handling complaints. In his February 2021 statement to the Bureau’s Division of Consumer Education and External Affairs, Mr. Uejio directed Consumer Response to prepare a report highlighting the companies with a poor track record in responding to consumer complaints and indicated that “making sure that consumers who submit complaints to us get the response and the relief they deserve” will be among his top priorities. Mr. Uejio also raised concerns about racial disparities in complaint responses that he references again in his report message. In the message, he states that “the Bureau continues to analyze complaint data to understand and detail disparities observed in complaints submitted from Black , Brown, and Indigenous communities and will publish these analyses to inform the marketplace.”
The Federal Financial Institutions Examination Council (FFIEC) recently issued the 2021 edition of A Guide to HMDA Reporting (Guide). The Guide addresses the collection and reporting of residential mortgage loan application data under the Home Mortgage Disclosure Act (HMDA) for calendar year 2021.
The Guide reflects the changes to the HMDA reporting thresholds that the CFPB adopted in April of 2020.
The CFPB recently announced the public availability of calendar year 2020 residential mortgage loan application data reported under the Home Mortgage Disclosure Act (HMDA). The data can be accessed here. For each reporting institution, a modified version of the HMDA data reported by the institution is made publicly available. For privacy reasons, certain reported data is removed or modified before it is made public.
In what could be an important step towards needed regulatory updating to accommodate the growing use of artificial intelligence (AI) by financial institutions, the CFPB, FDIC, OCC, Federal Reserve Board, and NCUA issued a request for information (RFI) regarding financial institutions’ use of AI, including machine learning (ML). Comments on the RFI must be received by June 1, 2021.
Uses of AI. In the RFI, the agencies express their support for responsible innovation by financial institutions and observe that with appropriate governance, risk management, and compliance management, financial institutions’ use of innovative technologies and techniques such as those involving AI have the potential to augment business decision-making and enhance services available to consumers and businesses. The agencies describe the following six uses of AI by financial institutions:
- Identifying potentially suspicious, anomalous, or outlier transactions (e.g. fraud detection and financial crime monitoring)
- Improving customer experience and gaining efficiencies in the allocation of financial institution resources, such as through the use of voice recognition, natural language processing (NLP), and chatbots
- Enhancing or supplementing existing techniques for making credit decisions
- Augmenting risk management and control practices
- Using NLP for handling unstructured data and obtaining insights from that data or improving efficiency of existing processes
- Detecting cyber threats and malicious activity, revealing attackers, identifying compromised systems, and supporting threat mitigation
Potential benefits of AI. The agencies describe the following potential benefits of AI for financial institutions:
- Identifying relationships among variables that are not intuitive or revealed by more traditional techniques
- Better processing of certain forms of information, such as text, that may be impractical or difficult to process using traditional techniques
- Facilitating processing of significantly large and detailed datasets by identifying patterns or correlations that would be impracticable to ascertain otherwise
- Increasing accuracy, reducing cost, and increasing speed of underwriting
- Expanding credit access for consumers and small businesses that may not have obtained credit using traditional underwriting
- Enhancing an institution’s ability to provide customized products and services
Potential risks of AI. The agencies observe that the potential risks associated with using AI are not unique to AI, such as creating operational vulnerabilities and consumer protection risks (fair lending, UDAAP, privacy). They describe the following “particular risk management challenges” created by the use of AI:
- Lack of explainability as to how and AI uses inputs to produce outputs
- Because of an AI algorithm’s dependency on training data, perpetuation or amplification of bias or inaccuracies inherent in the training data or making of incorrect predictions due to incompleteness or non-representative nature of data set
- If an AI approach has the capacity for dynamic updating (i.e. updating on its own sometimes without human intervention), difficulty in review and validation
Information requested. The RFI contains a series of questions on the following topics:
- Data quality and data processing
- Overfitting (i.e. when an algorithm “learns” from idiosyncratic patterns in the training data that are not representative of the population as a whole)
- Dynamic updating
- AI use by community institutions
- Use of AI developed or provided by third parties
- Fair lending
The RFI includes as an appendix a list of laws, regulations, supervisory guidance, and other agency statements that might be relevant to AI. Such guidance includes the CFPB’s 2020 blog post on providing adverse action notices when using AI/ML models and the 2019 interagency statement issued by the CFPB and federal banking agencies on the use of alternative data in credit underwriting.
In the RFI’s questions regarding fair lending, the agencies specifically ask about the need for more regulatory clarity as to providing the principal reasons for adverse action in adverse action notices. However, the areas in which more clarity in the regulatory framework is needed to facilitate the use of AI in credit underwriting are not limited to adverse action notices, but also include the appropriate manner in which ML models should be tested for fair lending risk and how ML model development processes can search for less discriminatory alternatives. Both of these tasks are more complex in the case of ML models than with traditional logistic regression models. Financial institutions should use the RFI as an opportunity to bring those areas to the regulators’ attention.
In its Loan Guaranty Circular 26-21-07 the U.S. Department of Veterans Affairs (VA) expanded a temporary loss mitigation option.
As previously reported, in September of 2020 the VA temporarily authorized the use of deferments as a loss mitigation option for borrowers with a COVID-19 forbearance. The VA now will allow the use of a deferment for a borrower who has missed one or more payments because of the COVID-19 pandemic regardless of whether the missed payment was subject to a CARES Act forbearance.
Consistent with the prior guidance, a deferment may be used only with a borrower who can resume making the regularly scheduled loan payments. Pursuant to a deferment, the servicer would defer payment of the total amount of missed payments (including principal, interest, taxes and insurance) to the loan maturity date, or until the a borrower refinances the loan, transfers the property, or otherwise pays off the loan, whichever occurs first. There may not be any added cost, fees or interest to the borrower, nor any penalty for early payment of the deferred amount.
The VA notes that servicers do not need to enter into a modification agreement that alters the terms of the existing loan for the purposes of a loan deferment option. The VA also advises that it is temporarily waiving the requirement that a final installment payment not be in excess of two times the average of the preceding installments.
GAO Report Shows Servicemembers Can Effectuate USERRA and SCRA Rights in Arbitration, and Arbitration Clauses Do Not Prevent Servicemembers From Pursuing Many Claims Administratively, Without Class Actions
Consumer advocates often contend that Congress should prohibit arbitration agreements with class action waivers because servicemembers and other consumers need class actions to effectuate their statutory rights. However, a report issued by the Government Accountability Office (GAO) to Congress last month contains data that refutes that argument.
The GAO report studied the impact of mandatory arbitration agreements on claims by servicemembers under the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA) and the Servicemembers Civil Relief Act (SCRA). The USERRA generally provides protections for individuals who voluntarily or involuntarily leave civilian employment to perform service in the uniformed services. The SCRA generally provides protections for servicemembers on active duty, including reservists and members of the National Guard and Coast Guard called to active duty. In particular, the GAO report examined (1) the effect that mandatory arbitration has on servicemembers’ ability to file claims under the USERRA and the SCRA, and (2) the extent to which data are available to determine the prevalence of mandatory arbitration clauses and their effect on servicemembers claims.
The GAO report concluded that existing data was insufficient to answer these specific questions definitively and that data on the outcome of specific claims pursued through arbitration were “limited.” Nevertheless, the data that it did uncover shows that servicemembers can effectuate their USERRA and SCRA rights in an individual arbitration. The report discussed instances in which arbitrations administered by the Financial Industry Regulatory Authority “specifically enforced servicemembers’ rights under USERRA.” In one case, the arbitrators awarded $172,000 to a servicemember who pursued a USERRA claim against his employer. The arbitrators also found the employer liable for the servicemember’s attorneys’ fees and costs, totaling over $262,000, as well as the costs of administering the arbitration, totaling more than $36,000. In another case, the arbitrators ruled against a servicemember’s claim under the USERRA but assigned the costs of the arbitration to the employer, specifically citing USERRA’s protections against fees and costs.
The GAO report also shows that arbitration clauses do not preclude servicemembers from pursuing many USERRA and SCRA claims administratively, without the need for class actions. The report stated that “mandatory arbitration clauses have not prevented DOJ [Department of Justice] from initiating lawsuits against employers and other businesses under USERRA or SCRA” and that
“[s]ervicemembers may also seek administrative assistance from federal agencies, and mandatory arbitration clauses have not prevented agencies from providing that assistance.” Indeed, administrative remedies may benefit servicemembers even more than class actions because any recovery by the DOJ is not diminished by the 33% or more in attorneys’ fees typically siphoned off by private class counsel.
The report cites a case in which the DOJ filed a lawsuit against and reached a settlement with a mortgage company, requiring it to pay $2.35 million for allegedly foreclosing on the houses of 17 servicemembers without court orders in violation of the SCRA. It also cited another case in which the DOJ reached a settlement with an automobile lender in which the company agreed to pay $9.35 million for illegally repossessing over 1,100 vehicles in violation of the SCRA. Moreover, according to the report, DOJ has filed 109 USERRA lawsuits and favorably resolved 200 USERRA complaints through consent decrees or private settlements, and DOJ officials said that none of the employers compelled a servicemember into arbitration.
The effectiveness of these administrative remedies strongly undercuts the argument of the plaintiffs’ bar that class actions are necessary to effectuate servicemembers’ statutory rights. The GAO report notes that in addition to the DOJ, the Department of Defense and the Department of Labor also “often help informally resolve claims for servicemembers by educating employers and companies about servicemembers’ rights,” enabling the servicemembers to avoid legal proceedings altogether.
The data in the GAO report strongly supports the industry’s positions that (1) individual arbitration is more beneficial than class action litigation, and (2) administrative remedies can be sufficient to protect consumers’ statutory rights, without the need for class actions. In its 2015 empirical study of consumer arbitration, the Consumer Financial Protection Bureau found that the consumer’s average recovery in arbitration was $5,389. By contrast, settlement class members received a mere $32.35, while their lawyers recovered a staggering $424,495,451. Similarly, a November 2020 study by the U.S. Chamber Institute for Legal Reform found that consumers are more likely to win in arbitration than in court, consumers receive higher awards in arbitration than in litigation, and consumer arbitration is faster than litigation.
The GAO’s preliminary data should be heeded by Congress as it weighs possible legislative or regulatory measures that would prohibit or restrict the use of class action waivers in consumer arbitration and employment agreements. In considering such measures, Congress should be mindful not to throw the baby out with the bathwater.
The California Department of Financial Protection and Innovation (DFPI) announced on March 30 that it has entered into a consent order that permanently bars James Berry and any company he owns or controls from soliciting customers for Property Assessed Clean Energy (PACE) financing and seeking future enrollment as a solicitor for PACE programs. In its news release about the consent order, the DFPI highlighted its reliance on the new California Consumer Financial Protection Law (CCFPL) for its authority to take enforcement action against the individual and his companies.
Since the CCFPL became effective on January 1, the DFPI has moved quickly to exercise its new jurisdiction and authority. The CCFPL gave the DFPI new rulemaking and enforcement authority over “covered persons” relating to unlawful, unfair, deceptive, or abusive acts and practices and defines the term “covered persons” expansively to include many entities that previously were not subject to DBO oversight or oversight by a primary regulator. After announcing on January 19 that is had launched an investigation into multiple debt collectors, the DFPI announced on January 27 that it had signed memorandums of understanding with five earned wage access companies. Those announcements were followed in February by the DFPI’s issuance of an invitation for stakeholders to provide input on rulemaking to implement the CCFPL and the announcement that it had launched an investigation into whether student-loan debt-relief companies operating in California are engaging in illegal conduct under the CCFPL and Student Loan Servicing Act.
Under the California Financing Law, the DFPI regulates PACE programs by licensing PACE program administrators that administer PACE programs on behalf of, and with the consent of, public agencies. A PACE administrator enrolls and oversees PACE solicitors and solicitor agents who market PACE products to property owners and facilitate PACE program applications processed by the administrator. One of Mr. Berry’s companies had been enrolled as a PACE solicitor and Mr. Berry had been enrolled as a PACE solicitor agent for that company. Both the enrolled company and Mr. Berry were disenrolled by the administrator. In addition to using the disenrolled company to advertise and solicit customers, Mr. Berry used another company that had never been enrolled as a solicitor to advertise PACE financing and solicit customers for such financing. According to the DFPI, Mr. Berry not only used an unenrolled company to advertise and solicit customers, but also misled consumers by engaging in unfair and deceptive marketing practices that offered “no-cost” government-funded PACE projects and made it appear that the unenrolled company was a California government agency or affiliate.
In its news release, the DFPI states that, before the CCFPL’s enactment, Mr. Berry and his companies would have fallen outside of the DFPI’s regulatory oversight because it did not have the authority to bring enforcement actions against unenrolled individuals or companies. However, the CCFPL prohibits “covered persons” from engaging in unfair, deceptive, or abusive practices and authorizes the DFPI to enforce that prohibition. A “covered person” includes “[a]ny person that engages in offering or providing a consumer financial product or service to a [California resident],” or their affiliate or service provider.
CSBS Seeks Comment on NMLS Modernization: Networked Licensing Model and Other Topics
The Conference of State Bank Supervisors (CSBS) is inviting public comment and feedback on the Networked Licensing Model, Licensing Requirements Framework, Core Requirements and Identity Verification proposal, as part of the NMLS Modernization efforts.
The goal is to create a modernized NMLS that would streamline the license application process and promote efficient operations and networked supervision among state regulators.
Comment submissions are due by May 31, 2021.
NMLS Policy Guidebook Updated
The NMLS recently published an updated NMLS Policy Guidebook. The update adds “Commercial Financing (Lending/Brokering)” as a new business activity in the Business Activities Definitions document.
A summary of the update is available here.